Langton Capital – 2021-11-26 – PREMIUM – New variant, M&B meeting, labour issues, SSP, Remy, Diageo etc.:
New variant, M&B meeting, labour issues, SSP, Remy, Diageo etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
So, inflation’s running wild, Black Friday madness is upon us, there’s a Tube Strike and Storm Arwen is going to batter the east coast over the next 48hrs but, on the other hand, it’s Friday meaning that, on balance, today is getting-better sort of good day.
No real plans over the weekend.
But got a jab tomorrow, doing my pin-cushion impression and then may use that as an excuse to clear out the beer cupboard, drink everything that’s within 6mths of its sell-by date so as to, not quite recover, but rather ensure that I have something other than a sore arm to think about on Sunday morning.
Anyway, have a good one and let’s move on to the news:
MITCHELLS & BUTLERS FULL YEAR NUMBERS:
Following the announcement of its FY numbers, Mitchells & Butlers hosted a meeting for analysts and our comments are set out below:
• To say the very least, FY21 was an abnormal year. At least we hope it was. The company endured two lockdowns & various other restrictions. H1 was severely impacted. H2 has seen consistent improvement.
• Revenues are good but costs are not.
• Key metrics:
o Food > drink
o Suburban > city centres
o Prices up vs volumes down
o Younger customers > average
• The group did not highlight Provinces > London. M&B, though it is relatively food heavy, is represented in all segments.
• M&B is beating the market in restaurants & pub restaurants, however, trading behind the market in wet-led pubs. This was attributed to younger customers going to different venues.
• Q. LfLs disaggregated. Sales are being driven by spend rather than volumes. Covers and footfall must be materially lower.
• Q. Competitors? Closures have ‘been a benefit’. There will be ‘more casualties’. M&B could take market share.
• Q. European Covid wave? Consumers, at the moment, are not reacting.
• Q. Geography? Covid regs were different. Covid passports are being implemented differently in Scotland & Wales (and not at all in England). There have been changes in Germany.
o If Plan B enacted in the UK, things change significantly. Whether this will happen is, at the moment, seemingly unknown and unknowable.
• M&B had expected 3.5% but now sees around 6%. Labour is up 6.6%, food up around 7%. Energy may be up more so some costs must be down less than the 6% average. Energy price has doubled, longer contracts mean M&B will ‘enjoy stronger margins until energy bites’.
• The company says that, if utility costs remain at these higher levels, it will not be able to fully mitigate them.
• Q. Energy costs? Co believes they should abate. It can mitigate these, more modest, headwinds.
• Q. Labour issues. Co says its apprenticeship scheme helps it source staff for more senior roles. Shortages also impact the supply chain. Staff levels are almost back to ‘normal’. There is pressure right now but this will abate post-Christmas. Company retention is better as M&B can offer a proper career.
• Q. Prices? Up 3% or 4%. There is less discounting. Mix changes help. Premium sales have risen.
• The group has completed 42 refurbishment programmes and is working on a 6-7yr cycle. The group is increasing its room stock.
• Q. Balance sheet? Co feels ‘no compelling need to spend the cash that it has raised’. As pre-agreed, the co will not pay a dividend until Jan 23 at the earliest. M&B would look at freehold acquisitions on an opportunistic basis. This is not Plan A.
o M&B ‘very keen’ to look at M&A opportunities, but the primary focus will be to invest in their own estate. The company reiterated that debt servicing costs are c£200m & hopefully no more pension contributions after 2024.
Current trading & near-term future:
• The group has pushed delivery and works with three aggregators. There will be a degree of cannibalisation but delivery is here to stay.
• There are many other initiatives underway including those re stocking levels, table ordering, in-house property maintenance teams etc.
o M&B said the Ignite initiative development system will deliver added value by increasing efficiencies, but declined to give a £ amount. Will help M&B get ahead of its £65m headwinds.
• Co is ‘not out of the woods’ but it is ‘building positive momentum’. It mentions further premiumisation. This may imply that volumes could lag revenues.
• M&B says the ‘trading environment remains challenging’ & adds it will not get back to ‘normal’ in the current year. But it maintains that it is well-positioned to do so thereafter.
• Broad strategy is to continue to de-lever and build profits via focus on investment, culture & technological innovation.
PUBS & RESTAURANTS:
Markets will be rattled this morning by the appearance of a new variant of Covid-19 in southern Africa. At the moment, it is not clear what the implications are, but the market is likely to make snap decisions and begin to hedge in the possibility of the return of travel restrictions and possible shutdowns.
• This isn’t what we, particularly in the hospitality industry, wanted to hear so close to Christmas. Travellers will be banned from six southern African countries from today. The BBC says ‘one expert described the variant, known as B.1.1.529, as “the worst one we’ve seen so far”, and there is concern it has the potential to evade immunity.’ That again, is suboptimal news.
• There have been no cases confirmed in the UK but, if we have learned anything over the last 18mths, it’s that that doesn’t mean a great deal at this stage. The variant is currently in South Africa, Hong Kong and Botswana. Health secretary Sajid Javid, who said he would not wear a mask on quiet trains even if he was asked to, says that scientists were “deeply concerned” about the new variant but more needed to be learned about it.
• The variant is apparently the most heavily mutated variant seen so far and, as such, it is ‘now radically different to the form that emerged in Wuhan, China’ (says the BBC). That means it is ‘radically different’ from the initial disease, the one that the vaccines work against. Hopefully the vaccines will, in fact, work against this one but, with the markets set to open sharply lower, it’s not hard to see what the reaction will be in the very short term.
Fourth has reported that rising wages are putting increased pressure on UK pub & restaurant companies. It says ‘for the first time since the outbreak of the pandemic, all sectors within hospitality saw staff headcount increase in October, compared to last year. However, the labour shortage is still evident with overall industry staffing levels some 18% down on the same period two years ago.’ It says ‘hourly rates of pay across pubs and restaurants have climbed steadily since trading restrictions were lifted in April, and are likely to continue to do so with the introduction of new National Living Wage rates coming into force in April 2022, with the headline rate for over-23s set to be increased by 6.6% from £8.91 to £9.50 per hour.’
Fourth says British workers now account for 54% of the hospitality workforce, compared to 47% in October 2019. EU workers make up 31% of the hospitality workforce, compared to 42% in October 2019 and workers from non-EU countries currently make up 15% of the workforce, compared to 11% in October 2019.
• Fourth reports that ‘hours worked in pubs in October 2021 were 31% up on October 2020. Staff headcount in pubs is up 2% on the previous year, but 18% down on 2019. While wages are close to £10 an hour for back-of-house pub workers, front-of-house workers aged 23+ are currently earning an average of £9.17.’ it says ‘in restaurants, headcount was up 6% in October 2021 and hours worked increased by 46%, compared to 2020. Wages are also rising with front-of-house staff aged 23+ being paid an average of £9 per hour. The same age group in back-of-house roles are on an average of £9.59 per hour.’
• MD of Fourth’s EMEA business Sebastien Sepierre says ‘as economic activity builds and the nation begins to move again, we are beginning to see green shoots in the hospitality sector.’ He says ‘this growth serves to highlight the labour shortage and just how competitive businesses must be to both attract and retain staff. The new National Living Wage rates announced in the Autumn Budget will ensure the average hourly rate of pay continues to rise, placing further pressures on hospitality businesses.’
• Fourth says ‘operators will need to look beyond hourly rates of pay to navigate these waters. Technology and digital solutions play an important role in helping operators hire, onboard, engage and retain team members. Businesses will ultimately have to be smart with their labour scheduling strategies to ensure consumer demand continues to be met and the guest experience doesn’t suffer.’
Lidl said yesterday that the use of short-term visas will not be sufficient to solve labour shortages in the food industry. It says there are labour shortages ‘in every corner you look at the moment’. The Times reports that it is raising wages for its lowest-paid workers, from £9.50 to £10.10 per hour outside London and from £10.85 to £11.30 in the capital from March next year as it battles with rivals to recruit staff.
• Whilst Lidl and other supermarkets are not direct competitors with hospitality, tell that to the people who have left the one industry to join the other. There may be no tips in a supermarket but hours may be less unsociable and the stability of employment somewhat greater.
The CBI has said that supply constraints are restricting output. Order books are reported to be at their strongest since the records began being kept in 1977. The CBI says ‘intense supply side challenges continue to put pressure on firms’ capacity to meet demand. Alongside record order books, stock adequacy was the weakest on record in November and manufacturers are increasingly having to pass on significant cost increases to customers.’
• This has inflation written all over it. The Bank of England’s MPC meets on 16 December and may be currently preparing its Christmas present for UK businesses, mortgage-holders and consumers. Langton, for its sins, is all three.
The ONS’s real time stats show that the Great Crisp Shortage is abating. Some 24% of shops said they had no stock or less than they wanted compared to 33% recorded a week earlier.
The CBI has said that retailers are putting up their prices at the fastest rate since 1990. There have bene “big upward swings” in November at clothing and department stores. In the quarter to November, the balance of retailers reporting higher selling prices stood at 77%, a 30yr plus high.
• Retailers are putting prices up because they can. Some must but all likely want to. The CBI says ‘Christmas seems to have come early for retailers, with clothing and department stores in particular seeing a big upward swing in sales volumes in November.’ It adds that it ‘seems likely that reports of supply chain disruptions prompted consumers to start their Christmas shopping early.’
• Stock levels are said to be adequate. The CBI says ‘retailers are becoming more optimistic, with both employment growth and investment intentions picking up strongly.’ But it adds ‘cost pressures remain a very real concern.’
Two more energy companies went bust yesterday to take the total, we believe, to 25. This will put another two groups of consumers onto prices nearer the spot price.
COMPANY & OTHER NEWS:
SSP Group has announced ‘the appointment of Patrick Coveney to the role of Group CEO, effective 31st March 2022.’ It says ‘this follows the announcement on 14th July 2021 that Simon Smith is to leave the business in December. Jonathan Davies, in his role as Deputy CEO and CFO, will lead the Group Executive Committee and oversee day to day business prior to Patrick joining.’ Chairman Mike Clasper says ‘we are pleased to announce the appointment of Patrick who will join us as we emerge from the pandemic with considerable momentum.’
The Press take on M&B. The shares went up, which is the starting point for late editions. The BBC quotes M&B as saying that ‘office Christmas parties will be smaller and more suburban this year’. The Times focuses on cost increases & inflations (which is where we would have gone) and Sky takes the same line saying ‘hospitality firms face a “major challenge” from higher energy and staff costs as they seek to rebuild following the pandemic. That won’t come as a shock to operators.
Diageo plc has today updated on its capital return programme, saying that this will be the ‘next tranche of its previously announced return of capital programme of up to £4.5 billion to shareholders by 30 June 2024.’
• The company says it ‘has entered into a non-discretionary agreement with Goldman Sachs International to enable the company to buy back shares with a value of up to £0.55 billion. This agreement will commence on 26 November 2021 and will end no later than 4 March 2022. The purpose of the repurchases is to reduce the share capital of Diageo and all shares repurchased under this agreement will be cancelled.’
Remy Cointreau shares rose sharply yesterday as the group raised its full year profit estimates swelled on Thursday after the firm hiked its full-year profit forecast on the back of strong demand in China, the United States and Europe. The co says it now expects “very strong” organic growth. Operating profit for the six months ended Sept. 30 rose by 104.5% on an organic basis to 212.9 million euros. CEO Eric Vallat says the company has made an “encouraging” start to Q3 in China thanks to sales on Singles’ Day.
Trade bodies UK Hospitality, the British Beer & Pub Association, the British Institute of Innkeeping and Hospitality Ulster have come together to make recommendations to operators as to how to combat drink spiking and protect customers. The bodies say ‘although the number of drink spiking reports remain low, any such incidents underline the need to protect the welfare and maintain the safety of customers. It is why we continue to collaborate with the police and other local stakeholders to ensure everyone can enjoy a fun night out.’
Tube strike in London today impacting the Victoria, Central, Northern, Jubilee and Piccadilly lines. That won’t do much to encourage workers to stay in the office for the full five days this week.
JD Wetherspoon has said that some ‘major investors and advisors are breaching the Corporate Governance Code.’ Alleging hypocrisy as the group’s own practises are sometimes questioned, Wetherspoon says it is ‘disappointed to note that a minority of major investors and corporate governance advisors are breaching the 2018 Corporate Governance Code by using a “box-ticking” approach to its guidelines.’
• Chairman Tim Martin says too strict a box-ticking approach to governance ‘is creating a situation in which many UK PLCs have, to their detriment, inexperienced boards. Almost no UK PLCs today have any NEDs who were at the company in the last (2008-2010) recession, for example.’ He adds that it is ‘noticeable that many successful American companies do not adhere to the arbitrary nine-year rule, which, Wetherspoon believes, is a sensible approach.’
Analysis by economist Shashi Karunanethy in the Rebuilding Hospitality: The Changing Shape of the UK Workforce report that was created using data from workforce management platform Deputy, shows that the proportion of millennials working in hospitality has declined from 49% to 42%. At the same time, the proportion of workers from Gen Z has risen by 5%, which equates to around 150,000 workers.
• Karunanethy said ‘We’ve lost a huge proportion of our workforce and we’re currently more reliant on young staff than ever before.’ Karunanethy believes that many millennial workers have moved into roles such as supermarket work and delivery driving.
Data from Lumina Intelligence Pub & Bar Market Report 2021 shows that the average price of a pub meal increased by 1.9% YoY. Prices for mains have risen the most across all dishes at 2% growth and the average value has increased by 22p.
Flight Club has announced its next opening in 2022 will be at The Brewery Quarter, Cheltenham, taking the chain to 9 sites. The new Flight Club is set to open in Spring.
Vacancies in the hospitality industry have been forecasted to increase by 75,000 this December, compared to 2019. One of the key issues the pandemic created was staff not returning from furlough as over the last six months of furlough.
Arc Inspirations reports sales up 42% since July 19 compared to 2019, with Banyan, BOX and Manahatta recording sales of £17.5m since April 21. The company reported EBITDA of £3.7m, more than double the same period last year.
• CEO Martin Wolstencroft said ‘We have secured two further new sites which we expect to open in the next 12 months and are actively exploring more opportunities in new cities as we continue to build a meaningful pipeline for our brands.’
Following sales which exceeded expectations, Wendy’s is set to ramp up its UK growth plans – targeting 50 new openings in 2022, up from the 10 new outlets originally planned. According to Abigail Pringle, chief development officer at Wendy’s, revenues at the restaurants it has opened this year are ‘far more’ than the chain had expected, at £40,000 a week.
Insights firm Brandessence reported that the craft beer market grew to$41.07 billion in 2018 and will reach $92.80 billion in 2025. The sector is said to be growing at a 12.35% CAGR by 2025 end.
LEISURE TRAVEL & HOTELS:
Shares in Intercon and Whitbread rose by around 3% each yesterday on the back of international travel recovery hopes highlighted in a broker note. That could go into sharp reverse in today’s trading.
Sales and marketing director at Barrhead Travel Group, Nicki Tempest-Mitchell, told the Abta Travel Trends conference that the average selling price of a holiday per customer has risen by 20%. Mark Duguid, MD at luxury operator Carrier, agreed, saying spending is up 37% on 2019.
Stuart Baker, business director for travel at market research firm GWI, said that consumer confidence in Q4 has dipped for the first time since Q1 because of the ‘headwinds’ caused by levels of household debt and disposable income. However, GWI figures show that 55% of people want to travel in 2022, which equates to almost 20 million Brits who have not yet booked a holiday.
New Zealand’s government has set out a three-step plan to reopen its borders, aiming to welcome back foreign visitors by April 2022. From 16 January, New Zealand will allow fully vaccinated citizens, residence-class visa holders and other eligible travellers to enter the country from Australia.
Village hotels has partnered with Swurf, allowing Swurf app users to locate, book and access discounts from approved host venues that welcome remote workers.
Cloud gaming company Antstream Arcade has closed a financing round of $3.5m led by the Atari Group. Antstream Arcade offers players the opportunity to play and compete in the world’s largest library of iconic games from the arcade era up to the modern day retro indie titles.
FINANCE & MARKETS:
The rapid rise in coronavirus infections in Germany and high inflation rates are said to be behind the slide in consumer confidence in Germany. GfK reports that sentiment fell to minus 1.6 points in November, down from a revised 1.0 points a month earlier.
The SMMT reports that UK car production has fallen to its lowest level in 65yrs on the back of Brexit, chip shortages and the pandemic. The SMMY blames “production stoppages” linked to the shortage of semiconductors. Second hand car prices have shot up as that, in some cases, is all that would-be buyers of new vehicles can get.
Bank of England governor Andrew Bailey, whose MPC did not last month put interest rates up in order to combat the inflation that he has said is transient, has said that guiding the markets as to what he is about to do is a ‘murky’ business.
Sterling weaker at $1.3298 and €1.1845. Oil price lower at $79.90. UK 10yr gilt yield down 5bps at 0.96%. World markets heading lower on fears of the new Covid variant with London set to open down around 165pts as at 7am.
RETAIL WITH NICK BUBB:
• Today’s Market: Wall Street was closed yesterday for the Thanksgiving holiday, but the stockmarket in London is expected to tumble this morning as the new coronavirus strain discovered in South Africa puts the wind up investors (according to the Proactive investor website). The spread betting firms have called the FTSE 100 index down 128 points at 8am, to 7,182, with oil companies likely to be leading the retreat, as oil prices plunge in the wake of the news from South Africa.
• Today’s News: Ahead of the ScS AGM (at 2pm), the sofa retailer has issued a detailed trading update, noting that over the last 16 weeks there has been a like-for-like order reduction of 10.6% against the strong comps of last year, and highlighting that over the last seven weeks, “the group has seen a reduction in store footfall and conversion with consumers spending less on big ticket discretionary purchases. This appears to be driven by a change in behaviour with consumers shopping earlier for Christmas when compared with previous years”. The company says it is still confident about the outlook, ahead of the key Winter Sale period, but it makes no forecast for the y/e July 2022.
• Next Week’s News: There’s not much going on next week, as the Black Friday promotions merge inexorably into the Cyber Monday promotions and as November moves inexorably into December, but Monday brings the MySale AGM, whilst on Tuesday we get the Topps Tiles finals, the Shaftesbury finals and the JD Sports share split. The latest FTSE Quarterly index review is announced on Wednesday evening (with M&S expected to fall short of re-entry into the FTSE 100, but with AO,com expected to drop out of the FTSE 250 index).